Created: 7/11/1975

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The following intelligence organizations participated in the preparation of the Estimate:

The Central Intelligence Agency, the intelligence organization! of the Department* ot Slate, Deiente. ond Treasury, the National Security Agency, and the Energy Research and Development Administration


The Deputy Director of Central Intelligence representing the Central Intelligence Agency

The Director of Intelligence and Research representing ihe Department of Stole The Director, Defense Intelligence Agency The Director, National Security Agency

The Special Assistant to the Secretory for Notional Security, Department of the Treasury

The Deputy Assistant Administrator for Notional Security, Energy Research and Development Administration


The Assistant Director, Federal Bureau of Investigation

Also Participating:

Tho Assistant Chieftor Intelligence, Department of the Army

The Director ofDepartment of the Navy

The Assistant ChiefIntelligence, Department of the Air Force

the outlook for brazil


Brazil's long-term economic prospects are good, but in the shorter term it will experience reduced rates of growth, relatively high rates of inflation, and large deficits in its balance of trade.

Brazil's prospective growth rate5 constitutes goodby current world standards, although il will be aof expectations after thoercent annual growtli

Discontent with economic conditions contributed to thesuccess of the opposition party in last November's election.

Should economic conditions appreciably worsen, the regime would become increasingly vulnerable to attack by its domestic critics and there couldesurgence of economic nationalism.

President Geisel has undertaken to liberalize the political systemrocess which has come to be known as "decompression."

The aim is to ease controls on political activity and to widenin the political process.

"Decompression" has had some important results, including the remarkably4 congressional elections and some easing of press censorship.

But it restsragile consensus among various groups not to challenge the statm quo in any serious way, and it has run into opposition from conservative members of the military hierarchy.

The outlook for political liberalization in Brazil, although betler than at any times still not particularly favorable.

A return to civilian rule in the next few years is highly unlikely.

Pragmatic considerations, particularly economic ones, will continue to guide the formulation of Brazilian foreign policy.

Preferential treatment for Brazilian exports willrimary goal, and protectionist measures by the developed countries will be viewed as inimical to Brazil's vital interests.

Brazil has aspirationsole as an emerging world power, and its policymakersophisticated understanding of the reality of economic interdependence and of the constraints imposed on Brazil's autonomy by its need for foreign capital, technology, and raw materials.

Nonetheless, Brazil remains an underdeveloped country* and it will side with such countries on many issues in order to secure economic concessions and toedistribution of the world's wealth to its own advantage.

Brazil cannot aspire to become spokesman for the Spanish-speaking countries of Latin America, but wants to solidify its position as the paramount power there so that it can play anrole as an emerging major power.

While Brazil has almost certainly notecision to develop nuclear weapons, the government does not want to foreclose this option.

It sees nuclear power as an important factor in supplying its future energy requirements.

It regards US pressure to sign the Nuclear Nonproliferation Treaty as an unacceptable infringement of its sovereign rights.

It is purchasing from West Germany the technology and facilitiesomplete nuclear fuel cycle.

ramework of strong traditional ties. Brazil's foreign policy will almost certainly diverge increasingly from that of the US.

Disagreements are most likely to involve economic issues and will probably become more numerous with the passage of time.

Despite differences on specific issues. Brazil overall will continue to desire close and cooperative relations with the US.


Eleven years have passed since (he military-led rebellion which overthrew leftist-orientedJoao Coulart onl (be time, most civilians, including politicians who backed (he coup, assumed thai the intervention was of tbe sort well established in the Brazilian politicaland that power would toon revert to civilian hands. Most military lenders, however, came to see their role in tbe reformation and development of Brazilonger-term undertaking. The succeeding yeancries of measures whichrestricted political activity and consolidated military control. These measures were justified as necessary lo transform Bra'/llevelopedand to reform its political structure.

By (he endhe regime had brought (he political opposition under effective control, and0 had virtually eliminated leftist terrorists. To do this, it resorted in many repressive measures, including press censorship, arbitrary arrest in discs o( suspected subversion, and in some cases torture and murder of political prisoners. The regime's tactics intimidated most Brazilian opponents who remained in Ihe country, while itsarge degree of support among important sectors of the population. Manywere also inspired by (he prospect of at last realizing Brazil's elusive quest for national greatness.

A unique system has evolved in Brazil. While the armed forces leadership retains ultimate author-ity nnd discretion over basic policy, economic strategy and operational functions are left tomanaged by technocrats and, in somey qualified retired military officers. Political power is oenlercd in the presidency, which4 has always been filledetired general. In the economic area, (he regime has been particularly responsive to industrialist and entrepreneurial groups concentrated In Sao Paulo, whose interests have been reflected in the choice of economicand (be policies followed.

Ernesto Geiscl assumed the presidency in4 amid speculation that he wouldolitical liberalization designed to increaseparticipation in government and broaden the (be political base of (he regime. Almostclouds began to appear onemarkably free election took place in4 which resulted in significant gains for the sanctioned opposition party and aroused expectations in many quarters of greater political freedom. At present, there is increasing uncertainty about (be future direction of the

ernmcnt and the economy, and about the degree ol "decompression" that will be tolerated.


Wilh the possible exception of nationaleconomic development has remained thepreoccupation of the regime establishedhe Brazilian economy experienced4eriod during whichwas broughtanageable level. But the drastic economic measures taken during that period laid the basis for an impressive period of expansion under the direction of Finance Minister Delfim.. gross national product (GNP) grew by aboutercent each year (see

In the politically sensitive area of inflation, Brazil had considerable successhe official figures for annual rates of inflation fell progressively from more thanercent1owercenthe accuracy of these figures has often been questioned, however, and the rate3arge element of repressed inflationeflected in the much higher rateespite continuingomplex system of automatic monetary correction (commonly calledas helpedeconomic decision-making and encouragesavings.

he Brazilian economic boom has beenby exceptionally strong growth in thesector and in exports. Industrial production has increased byercentnd3 alone it increased byercent. Theand chemical industries have shown the largest increases, but all major industries haveat an impressive pace, with the industrial sectorrowing share of total GNPpercent7 toercent. Aof domestic export incentiveseries of frequent mini-devaluations have helped keepproducts competitive on the world market.9 the total value of exports has more than doubled, and3 the figure jumpedver the previous year. Manufacturedhave experienced the greatest increase, nearly doubling their share of the total. Nonetheless, three fourths of Brazilian exports are still primaryand semimanufactures.

S. Development planninghange of emphasis from concentration on certain dynamic industriesore balanced growth of the whole economy. The planningrive for import substitution in capital goods and raw materials, and stimulation of internal consumption. It alsorowing realization that, given the changing price picture in primary products.



Growth of Brazil's GNP, Industry and Agriculture

indusUial Production,

Real GNP

Aoricullurai Production

60 61 61 63 65 66 67 68 69 70 71 12 73 7*

Brazil's Annual Increase in Real GNP




aa 6J

Br.uil'i future prosperity may depend more onits agricurtuial than on ih ability to market its manufactures abroad. Tbe planning dc-emphasizes grandiose project* vuclt as the Trans-Amoxonian highway, nnd it caution] against exag. geiated cipectatluni for growth.

espite the pbeoornendl growth of theeconomy during the past six years, severe problems remain. Development tins been uneven anil concentrated in the center-south, particularly in highly urbanized areas in the states of Rio de Janeiro. Sao Paulo. And MinaiOther parts of Ihe nation have dune much less well. Thefor example, remains seriously underdeveloped despite many government attempts to encourage economic activity io the area. Inequities in income distribution persist, with tbe benefits of growth heavily concentrated at the highest income levels. Additionally, millions of Brazilians continue to live on the fringes of the money economy and minimum wage laws and literacy campaigns have yet to reach them.

trains aie developing that will almostdiminish Brazil's sustained high rate of growth for the next year or two. Although the gov-eminent has remained publicly bullish about tbe economic outlook, tho growth rate will probably drop toercent or less this year and chances are at least even that it will be no betterrowth rate ofercent would stillgood performance, particularly in comparison with stagnation in the developed world, but wouldubstantial drop from tbehe year the "miracle" began.

hief among Brazil's problems is thedeficit in the balance of trade, whichonstraint on economic growth (seettention has been focused primarily on tbe skjTOcktling expenditures for imported petroleum (aboutercent of Brazil'shich more than tripledut Brazil's outlay for imported goods has jumped by extraordinaryt> in all major commodityports continued to increaseespectable rate during

ut not rapidly enough to compensate for the soaring costs of imports. The combined trade del kit and outflow for serviceseficit on car-rent accountroximately US S7 billion

uring the past five years, Brazil has been able to offset its curreni account deficit bymassive inflows of capita] from abroad. New lured foreign investment rose fromillion8 tn aboutillionnd the total accumulated direct foreign investment (including reinvested profits) climbed fromillion6 billion in the same period. The US accounts for the largest share of direct foreign investment with aboutercent of the total, but Japan has increased its investment more rapidly than any other nation in ihc last three years and now accounts forercent of foieign direct investment. The bulk of



capital has entered Brazil in the form of medium- and long-term loans and financial credits, whichet inflow of6 billion4 alone.

The inflii* of foreign capital has had aeffect on the growth of ihe Brazilian economy, but it has also increased the degree of foreign ownership in important sectors. In view ofsentiments, this hasolitically sensitive3 survey reported that among the topirms (in terms of gross8 were foreign-owned, eight government-owned, and only four Brazilian privately-Owned. Foreign-owned companies predominate among the laigesl firms in capital goods, consumer durables and non-durables, and intermediate products.

By the endhe entry of foreign capi tal had enabled Biazil to accumulate exchangein excess of US J6 billion, which gave i( the sevrnlh highest figure in the world. Although foreign capital continued to enter the country in large amountshe inflow was notto fill the gap on current account. Brazil lost more thanillion In reservesnd the total stood at less2 billion by the end of5 The ratio between net foreign debt and exports, which hadow point4limbed2 by tbe endnd will increase further ioa worsening foreign debtowered growth rate and strict import controls will dampen demand for imports this year.

The Cdsel administration has meanwhileits efforts to secure foreign capital. The Finance Ministry has reduced the minimum term for foreign loans from ten years to five, whiletaxes on foreign interest payments and other charges on foreign loans. The goal is clearly to maintain BmiTt attractiveness for foreignDespite some recent improvement in receipts of foreign capital. Ihe efficacy of such measuresdoubtful. Brazilian efforts to secure Arab petrodollars lor investment projects have vo far met with only minimal success, but negotiations with Kuwait and Saudi Arabia are continuing ami might provide needed foreign capital which is in short supply under cuirent market conditions.

and internal pressures haveBrazil's chronic problem with inflation.trend in the inflation rate wasreversedhen official figuresgeneral price increase of aboutercent,double thait appears probableinflanon rites *dl plague Brazil for somecome, because of the world-widestringent import controls, and thepolicy of more liberal wage


recent years. Brazil has becomeintegrated into the world economy.economic considerations have becomemore important factor in Brazilian foreign


razil continues an aggressive search for new markets for its products, not only in theWestern nations, but also among communist and developing countries as well. It has altered its positions on international issues in an attempt to eliminate points of friction with trading partners. Brazil has intensified lU relations with the Soviet Union, recognized Communist China, and upgraded its representation inropc; each of these movements has lieen accompanied by significant economic initiatives. Even before the Portuguese coup ofraail abandoned its tacitof Lisbon's policy in Africa in hopes of securing economic and diplomatic advantages in Black Africa. Trade figures reflect the success ofefforts. The US and Western Europe bought more than three fourths of Brazils exportsul purchased only slightly more lhan halfuring the tame period. Brazil's exports to countries other than the US and Western Europe increased by moreercent (from7 million5 billion).

razil is hoavily dependent, on imporlod oil. most of it from Arab sources. The energy crisis brought about an abrupt shift in Brazilian foreign"equidistance" in the Arab-Israelito support of lite Arab came. Brazil isto exploit this change to secure investment funds from Kuwait and Saudi Arabia. The oversew ami of PETROBRAS, Brazils state petroleumis expanding oil exploration and production activities in the Middle East, and Brazil is pursuing other opportunities for trade, investment, andassistance in the region.

Brazil is attempting toIts sources of energy to make itself lessto politically inspired marketis investing innd gas fields ofand has concluded petroleum importwith the Soviet Union, Peni, Nigeria,Urgent efforts to developin the Parana basin have produced(let wilh Paraguay and have aggravatedalways prickly relationship with encouraging the exploitation oflow-grade coal deposits at an alternativeof oil and high-rjualtty imported coal.are also being expanded through theof nuclear power.

drive to increase domestic sourceshas led to intensified off-shore explorations,ha*a tor oil fielddc Janeiro state. Its size is uncertain, andbe brought into productionl the earliest. The find raised overlyhopes of near self-sufficiency in oil. At best, the new discoveries willtoercent of Its domesticpetroleum by that time, comparedl present PETROBRAS" success makesunlikely that Brazil will reverse itspolicy and allow foreign oil companies toIn exploration and production activities

raziTs economic advances, along with its physical size and large population, have contributedeeling akin to "manifest destiny" at anmajor power Brazil exerts an increasingin the economics and politics of Paraguay. Uruguay, and Bolivia, and fear of Brazilian power has produced defensive reactions in Argentina. Peru, and Venezuela. Brazil ha* attempted lothe Spanish-speaking nations of the continent that its intention) are non-aggressive, but il remains apprehensive that sub-regional organization! such as the Andean Croup may be used to thwart Brazil's interests, particularly if Argentina should |oitt In Latin America, Brazil wants to solidify its position as the paramount power. It cannot realisticallyto become spokesman for the area, since the Spanish-speaking countries will nol grant Itole, but it doesecure base from which il can eaetcisc what It considers to be its international role ai an enicrsnng major power

ot yet developed, but clearly aspinng toorld role, Brazil finds llself in somethingilemma. On the one hand, itoot in the camp of less developed countries bent oo securing economic concessions from the industrializedandreater share of the world's wealth. On the other hand, Brazil's politicalmakes it suspect to the Third World, and the closer Brazil comrs to realizing its developmental goals, the less it has In common with these countries

rasilia spcfcs to minimize the difficulties posed by this dilemma, and to capitalize onto advance its economic interests am!its pobttcal position Thus Brazil supports efforts by less developed countries to gainaccess to markets in the major countries and higher prices for exports of primaryn these efforts, Brazil seeks to project itself as areasonable defender of Third Worldcapable of standing up tu the industrialized nations. Brazil's advocacy of such interests falls well short, however, nf outright confrontation with the developed countries- Brazil has increasingly ootne to beh'eve that comoiodity cartels are, in the long run, impractical for the products it exports. It has been hurt by OPECs success in raisingprices, and It* dependence on other essential

raw materials would make il vulnerable to reprisals if itosition of confrontation with the developed countries Thr principal thiust ofpolicy is to ooncenrialr on bilateral agreements which meet Brazil's particuW interests, whileinternational eorwiiodilv agreementseans of preserving favorable terms of trade for the primary products Brazil produces

The importancr lo the Brazilian economy of expanding exports has made Brazil acutely sensitive to profectiOfi1st measures by the US and otliernations. The controversy overduties on shoes illustrates Brazilian fears that the US will take similar actionider range of Brazilian products, and certain provisions of tlte'! Trade Reform Act have reinforced such anxieties. Pending complainls against other imports from Brazil threaten to complicaterelations in coming months Brazilians are convinced of the need for the US and the rest of the doe loped world to grant preferentialto manufactured exports of developing nations as well as to their primary' prodiscts and semi-manufaetuies. Despite its pretentions to globalBrazil is noteveloped nation, and inclusion of its productseneral system ofthrough multilateral trade negotiationsone of the primary goals of Brazilian foreign policy.

Within the framework of still strongtics, there are increasing divergences between Brazil and the US, particularly on economic issues. Although therearge degree of exaggeration in the idea that Brazil has followed the US leadoreign Minister Silvciradvocated an "independent foreign pnliry" in 'he) has repeatedly insisted thatot subject to "automatic alignments" Pragmatic, non-ideological initiatives to expand Brazil's international options have met with little effective resistance in Brazil, even from conservative clcnsrnls suspicious of re-Utions with Communist countries.

The government remains strongly opposed to communism on Ideological grounds, and despite

Brazil's growing economic relations with communist countries, the armed forces are mistrustful of their political motives, particularly the Soviet Union. The government vigorously suppresses any overtactivities by the Communist Party and other leftist groups, even while it Is increasmgh/ willing to deal internationallyragmatic basis with Marxist regimes Its ideological bent and traditional ties with the US (particularly strong within the armed forces) give thero-Westernbut from the Brazilian standpoint. East-West rivalry is of only minor importance inBrazil's position on most international issues of primary interest to It,

2S. Brazil regards US pressures lo sign theNonprolif era lion Treaty as an unacceptable infringement ol iis sovereign rightseans of fixing global power relationships in their present form. Brazilian inUansigrnce on this question sterns not only from it* apprehension over Argentina's lead in nuclear teersrsology but. more fundamentally, from its self-image as an emerging world power. Brazil will not accept any blanket treaty restrictions against peaceful nuclear explosions. It views th* proliferation of ever more sophisticated weapons among the Super powers as the basic problem in achieving disarmament.


Brazil sees atomic energy nv an important (actor in supplying its future energy requirements, ibt first nuclear power plant should begin operationnd eight others are plannedailure touaranteed Supply of enriched uranium from the US for the planned powercausedo look elsewhere for cooperation on nuclear mutters. West Germany has agreed to supply Brazil with technology and lacilitiesomplete nuclear fuel cycleuelfacility, eight powerranium enrichment facility using the commercially un-proven Becker nozzle process,uelplani. All nuclear equipment, facilities, and materials including technology will be subject to International Atomic Energy Agency safeguards.

The Brazilians have almost certainly notecision to develop nuclear weapons, but the government does not want to foreclose this option. If Brazil were to embark on such an endeavor in the near future using indigenous facilities, itcoulduclear device by the, by circumventing safeguard agreements-.testing nnd further development probablyat least two years would be necessary tocaponi/ed version suitable for delivery by combat aircraft.


The principal constituency of the government4 has been the Brazilian aimed forces. Active or retired senior military officers occupy the presidency and several key positions in the cabinet, and all fundamental policy decisions are considered with an eye to their acceptability to the armed forces. Enormous powers are concentrated in the executiveeries of Institutional Acts. These acts have enabled the military to dismantle the old political system, to cancel certain electoral mandates, and to suspend the right of habeas corpus. They were also used to close Congressime.

The regime has drawn its principal civilian support from businessmenenefitedfrom the developmental and fiscalfollowedarticularly industrial and commercial interests concentrated in Sao Paulo. In addition, the government has enjoyed considerable backing from the middle and upper-middle classes anil Irom professionals, technocrats, and civilMuch of this support is based on pragmatic economicoss of political freedom und influence has been accepted as the price of economic development and prosperity.

The principal opponents and critics of the regimeside from extremists andterrorists, have been elements of the clergy, students and intellectuals, and some politicians and labor leaders. None ofor ina serious threat lo the regime. Members of the clergy, including portions of the church hierarchy, have from time to time expressed their concern about abuses of human rights in Brazil including the resort to arbitrary arrests and the use of torture. These are issues on which most of the Church as an institution can unite, but it has rarely been an important political force in Brazil. The government-controlled labor unions have nevermuch political influence in Brazil, and4 their power has been reduced to almost nothing.

The regime has been strengthened bysuccess and by the belief widely held in Brazil that the country is at last on its way to achieving its rightful place in Ihe world. This has bolstered its view that only an authoritarian, well-integrated government, free from the conflicting interests represented by politicians, can propelfrom the ranks of the underdeveloped countries to the statusorld power.losv-down In economic growth will almost certainlyopposition to the administration. It would also raise questions about the military-basedunique capacity to fulfill its self-proclaimed role anil about the legitimacy of the military's claim to power.

4 an annual growth rate ofercent had come to assume an almost magical quality, and

the anticipated fallrowth raleercent or less5isappointment ofConsequently, the administration haseries of announcements designed to prepare the public psychologically. Working- and middle-class citizens were alreadyertain amount ol restiveness because of the high cost of living,tight consumer credit, and the failure toImprove real wages. Brazilercent annual growth in CNP merely toonstant level of CNP per capita.

In anticipation of embarrassing returns in the congressional elections ofheauthorized an "emergency" wageand relaxed controls on consumer credit. This was the first major departure in the regime's incomes policyhen the system ofadjustments in wages was adopted. The move was consistent with the general policy of the Ceiselin the new five-yearplaces greater emphasisore equitable distribution of wealth. It had littleeffect on the size of the protest vote,

Discontent with economic conditions conlrib-uted-to the unexpectedly strong wave of support for Ihe officially-sanctioned opposition party, the MDB (Movimento Demociatico Brasileiro),in the more developed states. Although the Brazilian congress has been virtually impotent, many voters seized the opportunity to express their displeasure with the administrations economic policies by voting against candidates of ARENA (Alianca Renovadorahe party of the government. The magnitude of the victory surprised even Ihe leaders of the opposition. The MDB won aboutercent of the total senatorial vote, nearly half of the scats in the lower house of Coogress,ut ofontested Senate seats, and control of legislative assemblies in several states including the most important: Sao Paulo, Rio Grande do Sul, Parana, Cuanabara, and Bio de Janeiro (the last two joinedingle state in.

President Ceisel's commitment to holding the elections and abiding by the results symbolizes his pledge to liberalize the political systemrocess which has come Io be known asThe term has no precise meaning! broadly, it represents an casing of controls on political activityidening of participation in theprocess. Ceisel and his Supporters appear to want the benefits which deriveystem that has the appearance of legality, is not undulyand embodies rules and procedures designed to prevent unauthorized acts by the police and the military security services. Geisel shows no sign, however, of relinquishing the vast powers heHe and his supporters share the conviction, almost unanimous within the military establishment, lhat the old politics must not be allowed to return, and that come what may, the Institutional Acts mustart of the Brazilian constitutional system.

The process of decompression has had aof other manifestations. It has included anat dialogue with liberal clerics and students and an effort to restore some of Congress' longprestige. It has been reflected in several of Ceisel's appointments, most notably that of General Colbery doilva as Chief of the Civil Household. Colbery has led the effort to rebuild relations with Ihe Church and the academicThere has also been an easing of pressPreviously taboo subjects are now being cautiously aired in the media, but editors, for the most part, have exercised great restraint for fear of government reprisals.

The supporters of decompression have aof interrelated reasons for pushing it at this time. They are probably spurred by an acutethat the military has exercised power in Brazil forears, despite various statements about restoring democratic rule. Indeed, each of Geisels immediate predecessors promised to restorein his term of office. Ceisel also appears to beroader base of support for the regime, particularly in view of the less favorable economic prospects. Some proponents of politicalhave apparently concluded that by allowing limited freedom to estabished institutions, and by

resorting to extraordinary measures as little as pos-sible, Brazil will in the longer run be less subject to political tensions and easier to govern.self-interest alsoart; there is concern within the military that if individuals and groups cannot let off steam, there will ultimately be an erosion of confidence, or even an explosion, that would affect the prestige and position of the military.

GeiseJ's efforts at liberalization are running into opposition from conservative members of the military. Some, particularly in the security forces, feel that the President is creating an atmosphere of permissiveness that threatens the revolution jtsell. There is concern that subversives will beor lhat past excesses committed in the name of national security will come to light. Thetop intelligence officer, Major General Bap-tista Figueiredo, is oneumber reportedlyby recent rapprochements with the USSR and China, and by the adininutration's relatively conciliatory attitude toward domestic dissaldenrs. The Army Minister. General Frota. also reportedly among the opponents of liberalization, at times has sought to convey the misgiving* of the conservatives to the President The conservatives have been alarmed by Gciscfs proclivity to follow tbe advice of General Colbery and Foreign .Minister Silveira and ignore their position on important issues.has become the principal target of hardliners determined to check or reverse the process ofliberalization.

The intelligence services believe that the gov-eminent has become increasingly dissociated from its military base, sacrificing support from the armed forces in its desire to culovmte civilian favor. Theyore equitable distribution of wealth, in order to eliminate disparities which "subversives" can exploit, but they also advocate stricterand the more vigorous prosecution of dissidents and subversises. They are clearly disturbed by the Portuguese revolution and by political violence in Argentina, andew outbreak of terrorism in Brazil if vigilance is lessened. They oppose any political thaw which would allow greater freedom of esprcssion forcategory which in their eyes includes many left-wing priests,intellectuals, professors, students, and poll-


a considerable evidence thatnot have full control of the activities of thesecurity forces. Even though thetop military officials have expressed firmto the torture of political prisoners,continue, while the President andhave Wen given incomplete orInformation about these activities. Thepolitical arrests since Geisel's inaugurationstrongly that the security forces operateindependence.^ ln;.Hnot only to inrinudate critics of theand otherut also tothe admmbtration and impede its attemptsup the political process.


Although long-run prospects for Brazil'sare good, it willlosser rate of growth, high uiflalion, and serious trade Imbalances during the next year or two. The gravity of these problems will dependreat extent uponconomic forces over which Brazil has tittle or no control. The uncertainty of cornrnodity price movements and of the speed of recovery from the world-wide recession are factors which complicate any prediction. Should economic problems Increase appreciably, the Geisel administration and the "resolution" would come under further attack from various elements of society. Al the same time as grounds for criticism become increasingly evident military hard-liners will oppose more vigorously any opening of the regime to wider participation.

Another possible consequence of an economic slowdownesurgence of economicertous downturn would tend to further debilitate the domestic private sector relative to foreign firms which have access to foreign sources of credit through parent companies and are therefore belter able to withstand economic contractions. Increased

dependence On foreign sources of capitalidening trade deficit may make servicing the foreign debt more difficult. Such conditions would bring strong pressure from nationalists in bothand entrepreneurial circles to revise the present policies which permit virtually unrestrictedof foreign capital in the Brazilian economy and could bring about stricter controls of foreign-owned companies.

oubt remains about how far Ceisel isor able lo go in terms of decompression. He undoubtedly realizes that his power ultimately depends on the backing of the armed for his administration and his austere personal style is lukewarm at besi, and greater freedom of expression is unlikely to result in praise for the regime or for the President himself. Ceisel will probably moderate his political openings to the civilian sector according to his readings of the limits of military conservatives' forehearance. Should he overstep those limits, or should the opposition press too hard, he will be subject to increasing pressures to restore political restrictions and might be forced to replace key officials with others more acceptable to the hard-liners.

Civen the military's concern for maintaining an appearance of order, unity, and rationality in government, Ceisel will probably complete his five-year term in office, although some observers insist he would resign rather than yield against histo demands by hard-liners for greaterDifferences between the President and the hard-liners could, however, affect the selectionuccessor.hoice is unlikely toatter of urgent concern within the military for another two years or so. it is possible that thecould force Ceisel toard-line candidate nol of bis Own choosing for the presidency

n overt clash within the armed forces is extremely unlikely. Ceisel has loyal officers in most key command positions. It would be very difficult for disgruntled officers touccessfuleven if ihey were inclined to do so. and at present they have neither the inclination nor the strength. On the other hand, Ceisel cannot ignore the opinions of the hard-liners, particularly if they reflect thoseubstantial sector of the armed forces. In the improbable eventrisis ofsenior officers would be hard put to choose between loyally to Ceisel and his policies and the desire to maintain unity within the armed forces. Past experience indicates the choice wouldbe the latler.

4 congressional elections immensely complicated Brazil's political future. Despiteby ARENA and the administration to present the MDB gainsealthy sign of developing political maturity and proof that democracy exists in Brazil, the returns have raised questions about one of the justifications for the regime's claim on power. The MDB leadership has stressed that it intends toresponsible" opposition, but itswill be severely circumscribed by the limits ofhe definition of which remains with the administration. The MDB will not beto question the bases of the regime, and the implicit threat of reprisals will limit the extent to which the opposition leadership will wish tothe administration. Some more radicalmay, however, ignore such proscriptions and pursue sensitive' issues on which thewould prefer to remain silent. Thehas, in effect,andateort which will be very difficult, if nol impossible, Io exercise.

The administration, for its pari, would find it more difficult than before the elections to justify and carryenewed policy of widespreadbut it retains the legal and institutional apparatuselective crackdown if it feels itself challenged. To date, military reaction to thehas been muted and cautiously optimistic for the most part, and one group of junior officers reportedlyanifesto calling for increased popular democracy. Some high-ranking officers, nevertheless, questioned the wisdom of permitting the elections and applied pressure (without sue-cess) to negate their results. Continued military acceptance of the election results is contingent upon

a cooperative altitude on the part of the opposition Should MDB pohticiani seriously provoke Iheit will probably respond

possibly wilh exemplary punishment and

n general, the outlook for politicalin Biazll. although better than at any times still not particularly favorable Any significant easing of restrictions on the press or the Congress inevitably results in criticism of thewhich the military has been psychologically unable toontinuing theme which retains its appeal wiihin the armed lorces is the desire to remove government from the corruption of political force* until such time as those forces could belo work harmoniously for Ihe common cood-An elected legislature even in its emasculated fotm,requent irritant, not only to hard-line elements, butide spectrum of the arrived forces.

t is difficult to envision the development of conditions under which the military would volun-tardy permitreturn to civilian rule Even if Ihe armed forces were willing, the country lacks civilian politicians with the national statureufficient constituency to assume control Cancellations of political rights and political arrests decimated the ranks of politicians, and the regime has undercut civilians who have tried Id achieve nationalThe two authorized parties are artificialwhich are now divided into factions and would almost certainly disintegrate into theirelements if allowed to do so. With rare ex-ceptions, leading rnibtary figures have declined to lake an active role in either party, and the con-

(erupt of the officer corps for professional politicians makes veryusion of the constitutional political structureAt facto sources of power The military-based regime has never trusted its osvn civilian political arm, and there is no evidence that this will change in the near future.

razils foreign policy will almost certainly diverge increasingly from thai of the US as ilits own interests throughout thr world.are most likely to involve economic issues such at trade, nuclear proliferation, and the role of mu Hi national corporations Brazil willto side with the less developed countries on many issues, ux it strives to escape IK traditionally dependent roleis the US and Western Europe. In Latin America. Brazil has no desire to artunogatc for the US and finds thatsolicitous treatment by Washingtonrelations with its Spanish-American

M. Despite differences on specific issues. Brazil svill continue overall to desire close and cooperative relations with the US, which will continue to be very important to Brazil in the economic andty fields, lira/it clearly recognizes ihe realities of economic interdependence and the constraintsupon its own autonomy by its need for foreign capital, technology, and raw materials.apidly industrializing society of continental dimensions, Brazil willrowing market for US exports and US foreign investment. It recognizes the US as the primary defender of the non-communist world and identifies wilh US security objectives, particularly in the hemisphere.

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